Earnings look ahead – BP, Royal Bank of Scotland, Taylor Wimpey

BP (first half results 1 August)

BP watchers will have noticed peer Royal Dutch Shell outperforming analysts’ expectations when it reported that second quarter profits more than tripled thanks to strong refining operations and a rise in oil prices. The Anglo-Dutch company also reported a massive recovery in cash flow to $12.2 billion and a drop in debt as its cost reduction efforts continued to pay off.

This bodes well for BP’s earnings report. There’s no doubt the year-on-year recovery in the oil price will boost earnings, but expect the company’s outlook to focus further on cost cutting as the oil price rally has now completely petered out and BP is still paying off the costs of the deadly 2010 Deepwater Horizon rig explosion. Indeed, the Wall Street Journal reported recently that BP has approached potential buyers of its North Sea assets and the company has also said it is considering an initial public offering (IPO) of its vast US Midwest and Gulf Coast pipeline assets. This means the focus is likely to be as much on the outlook as the earnings.

The chart points towards a pivotal area of support here for BP shares. The weekly chart highlights that we have continued to respect the 437 mark, which to some extent forms the right shoulder of a head and shoulders formation. With the 200-week simple moving average (SMA) also residing at that level, we are likely to either rally upwards from here or break below to spark another strong move to the downside. Keep an eye on the 432 level too as it helps form a zone of support, which must be passed through for the losses of recent months to persist.

Royal Bank of Scotland Group (first half results 4 August)

Lloyds Banking Group managed to post its biggest first half profit since the financial crisis and an increase in its interim dividend as it continued its steady recovery despite a further drag from mis-selling costs. Royal Bank of Scotland (RBS) has been lagging Lloyds’ recovery, and remains to a large extent in taxpayer hands without the ability to pay dividends. Still there was some good news when the EU Commission agreed in principle that RBS could keep the bank branches it had previously been required to sell as a condition of receiving a bailout during the financial crisis. That means it’s hanging on to a loan book of £1.4 billion, while having to spend about £800 million on ‘competition measure’ like encouraging business customers to switch to rivals. That looks like a good deal.

RBS’s path to normality also got shorter when it cleared another overhang from the financial crisis by agreeing to pay $5.5 billion (£4.2 billion) to the US Federal Housing Finance Agency over allegations it mis-sold mortgage-backed securities before the crisis.

Still, there are plenty of risks remaining around Britain’s banks, including continuing Brexit uncertainty and the Bank of England’s (BoE) warnings over rising consumer debt.

On the chart, we have seen yet another retracement over recent months, set within a clear uptrend since the July 2016 low. With the 100-week SMA and trendline support both converging at this week’s low, there is a good chance we could see a move higher from here. With that in mind, a bullish outlook is in play unless we break below 221 support.

Taylor Wimpey (first half results 1 August)

The housebuilder’s shares have not yet recovered the high hit from the end of May, although they have been on an upward trajectory following June’s plunge in the immediate aftermath of the shock UK election result. Still, Barclays gave the sector, and Taylor Wimpey in particular, a ringing endorsement recently when it said fears of the impact of potential interest rate rise were being overblown. The bank upgraded the stock to ‘overweight’ on the basis of a recent underperformance versus peers, its high dividend yield, and one of the highest returns on average capital employed in the sector. Persimmon’s statement earlier this month said that the election had no impact on the demand for new homes which bodes well for Taylor Wimpey’s first half.

On the chart, Taylor Wimpey shares have been regaining ground throughout July. However, this comes amid a wider sell-off in early June, with the current rally looking like a retracement before we move lower once more. With that in mind, keep an eye on Fibonacci resistance at 188, 192 and 197. A break lower from this current rising wedge would be notable, but look out for a closed four-hour candle below the 182 mark to point towards the beginning of the next move lower.